NEW YORK, Nov 9 (Reuters) - A U.S. judge told Argentina on
Friday it should not even consider evading a recent ruling
requiring it to pay bondholders who did not participate in two
major debt restructurings after the country's 2002 default.

U.S. District Judge Thomas Griesa in Manhattan said
Argentina must not seek to avoid making payments to the holdout
bondholders in accordance with an Oct. 26 ruling from the 2nd
U.S. Circuit Court of Appeals.

"If, and I emphasize if, there is any thought on the part of
the Republic to defy and evade the current ruling, then that
thought should be seriously reconsidered and set aside," Griesa
told Argentina's lawyers.

Griesa's comments came in response to remarks by Argentine
President Cristina Fernandez de Kirchner, who said the country
would not pay "one dollar to the 'vulture funds'."

The holdouts include Elliott Management Corp affiliate NML
Capital Ltd and the Aurelius Capital Management funds. They are
suing to recoup $1.4 billion of defaulted debt.

Griesa also said he would move to quickly resolve questions
regarding how the payments will be made by Dec. 2, when
Argentina is due to make the first of three payments totaling
more than $3 billion to bondholders.

The biggest payout will come Dec. 15 when Argentina has to
pay holders of its growth-linked GDP warrants, issued during its
harsh 2005 and 2010 debt swaps.

Friday's hearing was the latest development in an array of
U.S. litigation stemming from the country's sovereign default.

The 2nd Circuit ruled that Argentina had improperly
discriminated against bondholders who did not participate in
the country's debt swaps. About 93 percent of creditors entered
the swaps, exchanging their defaulted debt for new bonds.

The appeals court said Argentina had violated bond
provisions requiring it to treat bondholders equally by paying
those who did participate in the restructurings ahead of the
holdouts.

Griesa's hard-line stance on Friday further widened the
country's risk spread as measured by JPMorgan's EMBI+ bond index
and sent the price of protection against an Argentine
default surging once again.

Following the appeals court ruling, NML Capital asked Griesa
in a Nov. 6 letter to rule quickly on two issues that the 2nd
Circuit sent back to the trial judge to determine.

Among those issues was how the bond payment formula would
operate. It also asked the judge to determine how the injunction
would apply to third parties, including intermediary banks. The
2nd Circuit will review Griesa's ruling.

COURTS 'NOT HELPLESS'

NML's letter cited remarks by the president and Economy
Minister Hernan Lorenzino stating they would not pay the holdout
creditors. The officials also vowed to continue servicing the
country's restructured debt.

Those statements prompted a lengthy rebuttal from Griesa on
Friday. The judge said any move by Argentina to alter the
payment mechanisms for the bonds to skirt the 2nd Circuit ruling
would violate a court order from February.

"There cannot be a payment to exchange bondholders without a
court ordered payment to the plaintiffs," Griesa said.

Argentina has systematically fought every court decision in
favor of the holdouts and refused to pay several billion dollars
in court-awarded damages owed to them. Creditors have been
largely unable to collect on the judgments since most Argentine
assets are protected by U.S. sovereign immunity laws.

He ordered that Argentina submit an affidavit attesting that
it would comply with the February order. He added that "steps
can be taken to sanction the Republic."

"Our courts are not helpless," he said.

Boccuzzi told the judge that Argentina had complied with the
February order and had not made any changes to the way
bondholders were paid.

"They are not thumbing their nose at your honor," he said.

At the urging of NML, Griesa scheduled a quick timetable to
resolve the questions posed by the 2nd Circuit, with briefing
scheduled for completion by mid-November.

He said he intends to rule before the Dec. 2 payment so the
holdout bondholders have a chance to get a cut. A stay on
payments to NML and the other bondholders remains in place at
least until he issues a ruling, he said.

"They have been waiting for years to get some money," he
said. "And they're going to get something."

Argentine Finance Secretary Adrian Cosentino celebrated the
fact that Griesa kept the original payment orders on hold,
despite a request by NML to allow them to move forward.

"Judge Griesa confirmed that the 'status quo' is still in
effect and ratified the stay until this (broader) issue is
definitively resolved," Cosentino told state news agency Telam.

He also emphasized that the judge allowed representatives of
the holders of restructured bonds, as well as intermediary banks
such as the Bank of New York, to weigh in on the dispute.

The case is NML Capital Ltd et al v. Argentina, U.S.
District Court, Southern District of New York, No. 08-06978.